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Equilibrium Involuntary Unemployment Under Oligempory

  • L Kaas
  • P Madden
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We show that equilibrium involuntary unemployment emerges in a multi–stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the undercutting firm out of both markets. Full employment equilibria are payoff dominated by unemployment equilibria, and the arguments are robust to decreasing returns.

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File URL: http://www.socialsciences.manchester.ac.uk/medialibrary/cgbcr/discussionpapers/dpcgbcr21.pdf
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Paper provided by Economics, The Univeristy of Manchester in its series Centre for Growth and Business Cycle Research Discussion Paper Series with number 21.

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Length: 34 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:man:cgbcrp:21
Contact details of provider: Postal: Manchester M13 9PL
Phone: (0)161 275 4868
Fax: (0)161 275 4812
Web page: http://www.socialsciences.manchester.ac.uk/subjects/economics/our-research/centre-for-growth-and-business-cycle-research/

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  1. Jones, Larry E & Manuelli, Rodolfo E, 1992. "The Coordination Problem and Equilibrium Theories of Recessions," American Economic Review, American Economic Association, vol. 82(3), pages 451-71, June.
  2. Madden, Paul & Silvestre, Joaquim, 1991. " Imperfect Competition and Fixprice Equilibria When Goods Are Gross Substitutes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(4), pages 479-94.
  3. BÖHM, Volker & MASKIN, Eric & POLEMARCHAKIS, Heraklis & POSTLEWAITE, Andrew, . "Monopolistic quantity rationing," CORE Discussion Papers RP -536, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Benassy, Jean-Pascal, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 217-34, April.
  5. Heal, Geoffrey, 1981. "Rational rationing and increasing returns an example," Economics Letters, Elsevier, vol. 8(1), pages 19-27.
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